XML 95 R20.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value
 9 Months Ended
Sep. 30, 2012
Fair Value [Abstract]  
Fair Value

Note 12. Fair Value

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal, or most advantageous, market under current market conditions regardless of whether that price is directly observable or estimated using another valuation technique. The price in the principal, or most advantageous, market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal, or most advantageous, market that are independent, knowledgeable, and able and willing to enter into a transaction.

The fair value hierarchy categorizes the inputs to valuation techniques as follows:

 

     
Level 1 Inputs   –   Observable inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
   
Level 2 Inputs   –   Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and provide a reasonable basis for fair value determination, such as interest rates, yield curves, and implied volatilities, and credit spreads, or inputs that are derived principally from observable market data.
   
Level 3 Inputs   –   Unobservable inputs used to measure fair value for the asset or liability for which there is little, if any, market activity at the measurement date. These inputs are developed using the best information available at the time to the extent that inputs are available without undue cost and effort. These inputs and assumptions may include an entity’s own assumptions and model-derived inputs that are not corroborated by observable market data.

The Company’s fair value valuation techniques were applied to all of the Company’s assets and liabilities carried at fair value. In general, fair value is based upon quoted market prices. If quoted market prices are not available, fair value is based upon third party models that primarily use observable market-based parameters as input. Valuation adjustments, including amounts to reflect counterparty credit quality, the Company’s creditworthiness, and unobservable parameters, may be made to ensure that financial instruments are recorded at fair value. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value could result in a different estimate of fair value at the reporting date.

Securities Available-for-Sale: Securities classified as available-for-sale are recorded at fair value on a recurring basis utilizing Level 1, Level 2, and Level 3 inputs. Securities are classified as Level 1 when quoted prices are available in an active market. Level 1 inputs are used to value securities whose value is based on quoted market prices in active markets for identical assets, including U.S. Treasury securities. The Company also uses Level 1 inputs for the valuation of equity securities traded in active markets.

Securities are classified as Level 2 when the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other inputs. Level 2 inputs are used to value U.S. agency securities, states and political subdivisions, single issue trust preferred securities, corporate FDIC insured securities, MBS, and certain equity securities that are not actively traded.

Securities are classified as Level 3 when there is limited activity or less transparency to the valuation inputs. In the absence of observable or corroborated market data, internally developed estimates that incorporate market-based assumptions, when available, are used. There were no securities classified as Level 3 at September 30, 2012, or December 31, 2011.

Fair value models may be required when trading activity has declined significantly or does not exist, or when prices are not current or pricing variations are significant. The Company’s third party fair value model utilizes modeling software that incorporates market participant data and knowledge of the structure of each individual security to develop cash flows specific to each security. The fair values of the securities are determined by using the cash flows developed by the fair value model and applying appropriate market observable discount rates. The discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Specific securities that have increased uncertainty regarding the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium based on assumptions about the performance of the underlying collateral. Finally, internal fair value model pricing and external pricing observations are combined by assigning weights to each pricing observation. Pricing is reviewed for reasonableness based on the direction of the specific markets and the general economic indicators. The following summary describes the valuation techniques used by the Company to measure certain assets and liabilities recorded at fair value:

Other Assets and Associated Liabilities: Securities held for trading purposes are reported in other assets on the consolidated balance sheets and recorded at fair value on a recurring basis utilizing Level 1 inputs. Securities held for trading purposes include assets and liabilities related to employee deferred compensation plans. The assets associated with these plans are generally invested in equities and the liabilities are carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets.

Derivative Instruments: Derivatives are recorded at fair value on a recurring basis utilizing Level 2 inputs. The Company obtains dealer quotes based on observable market data to value derivatives. See Note 12, “Derivative Instruments and Hedging Activities,” for additional information.

Impaired Loans: Certain impaired loans, including restructured loans, are recorded at fair value on a nonrecurring basis using Level 3 inputs when repayment is expected solely from the sale of the underlying collateral. Collateral values are based on appraisals and adjusted for customized discounting criteria. In the Company’s experience, it rarely returns loans to performing status after they have been partially charged off. Generally, credits identified as impaired move quickly through the process towards ultimate resolution.

Other Real Estate Owned (“OREO”): OREO is recorded at fair value on a nonrecurring basis using Level 3 inputs. Real estate values are based on current and prior appraisals, estimated sales costs, and proprietary qualitative adjustments.

Goodwill: Goodwill is recorded at fair value on a nonrecurring basis using Level 3 inputs. When the book value of a reporting unit exceeds its determined fair value, goodwill impairment exists and the reporting unit is adjusted to fair value. Fair value is determined using discounted cash flow and market multiple models.

 

Recurring and Nonrecurring Fair Value

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy for the periods indicated:

 

                                 
    September 30, 2012  
    Total     Fair Value Measurements Using  
(Amounts in thousands)   Fair Value     Level 1     Level 2     Level 3  

Available-for-sale securities:

                                

Municipal securities

   $ 155,928     $ —       $ 155,928     $ —    

Single issue trust preferred securities

     42,597       —         42,597       —    

Corporate FDIC insured securities

     13,479       —         13,479       —    

Agency MBS

     288,283       —         288,283       —    

Non-Agency Alt-A residential MBS

     11,212       —         11,212       —    

Equity securities

     5,662       5,642       20       —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total available-for-sale securities

   $ 517,161     $ 5,642     $ 511,519     $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Deferred compensation assets

   $ 3,536     $ 3,536     $ —       $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Derivatives

                                

Interest rate lock commitments

   $ 301     $ —       $ 301     $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Deferred compensation liabilities

   $ 3,536     $ 3,536     $ —       $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Derivative liabilities

                                

Interest rate lock commitments

   $ 2     $ —       $ 2     $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  
   
    December 31, 2011  
    Total     Fair Value Measurements Using  
(Amounts in thousands)   Fair Value     Level 1     Level 2     Level 3  

Available-for-sale securities:

                                

Municipal securities

   $ 137,815     $ —       $ 137,815     $ —    

Single issue trust preferred securities

     40,244       —         40,244       —    

Corporate FDIC insured securities

     13,718       —         13,718       —    

Agency MBS

     280,102       —         280,102       —    

Non-Agency Alt-A residential MBS

     10,030       —         10,030       —    

Equity securities

     521       501       20       —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Total available-for-sale securities

   $ 482,430     $ 501     $ 481,929     $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Deferred compensation assets

   $ 3,210     $ 3,210     $ —       $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Derivative assets

                                

Interest rate lock commitments

   $ 135     $ —       $ 135     $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Deferred compensation liabilities

   $ 3,210     $ 3,210     $ —       $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

Derivative liabilities

                                

Interest rate lock commitments

   $ 6     $ —       $ 6     $ —    
   

 

 

    

 

 

    

 

 

    

 

 

  

 

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in certain circumstances such as evidence of impairment. The following tables summarize financial and nonfinancial assets measured at fair value on a nonrecurring basis segregated by the level of the valuation inputs within the fair value hierarchy that were held for the periods indicated.

 

                                 
    September 30, 2012  
    Total     Fair Value Measurements Using  
(Amounts in thousands)   Fair Value     Level 1     Level 2     Level 3  

Impaired loans not covered by loss share agreements

   $ 6,900       —         —       $ 6,900  

OREO not covered by loss share agreements

     5,728       —         —         5,728  
   
    December 31, 2011  
    Total     Fair Value Measurements Using  
(Amounts in thousands)   Fair Value     Level 1     Level 2     Level 3  

Impaired loans

   $ 12,022     $ —       $ —       $ 12,022  

OREO

     5,914       —         —         5,914  

Goodwill — insurance agencies

     9,405       —         —         9,405  

There were no transfers between valuation levels for any asset during the three and nine months ended September 30, 2012 or 2011. If valuation techniques are deemed necessary, the Company considers those transfers to occur at the end of the period when the assets are valued.

The following table presents quantitative information about financial and nonfinancial assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs:

 

                         
(Amounts in thousands)   Fair Value at
September 30, 2012		    

Valuation Technique

  

Unobservable

Input

   Range
(Weighted Average)		  

Impaired loans

   $ 6,900     Discounted appraisals (1)   Appraisal adjustments (2)     5% to 100% (38%)  

OREO

     5,728     Discounted appraisals (1)   Appraisal adjustments (2)     0% to 73% (32%)  

 

(1) Fair value is generally based on appraisals of the underlying collateral.
(2) Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.

Fair Value of Financial Instruments

Information used to determine fair value is highly subjective and judgmental in nature; therefore, the results may not be precise. Subjective factors may include estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different. The following summary describes the methodologies and assumptions used by the Company to estimate the fair value of certain financial instruments:

Cash and Cash Equivalents: The carrying amount of cash and due from banks and federal funds sold/purchased is considered equal to the fair value as a result of the short-term nature of these instruments.

Investment Securities: The determination of the fair value of available-for-sale securities is described within “Fair Value Measurements” presented above. The determination of the fair value of held-to-maturity securities is based on quoted market prices or dealer quotes.

Loans Held for Sale: Loans held for sale are recorded at the lower of cost or estimated fair value. The determination of the fair value of loans held for sale is based on the market price of similar loans.

Loans Held for Investment: The determination of the fair value of loans held for investment is based on discounted future cash flows using current rates for similar loans.

 

FDIC Receivable under Loss Share Agreements: The determination of the fair value is based on discounted future cash flows using current discount rates.

Accrued Interest Receivable/Payable: The carrying amount of accrued interest receivable/payable is considered equal to the fair value as a result of the short-term nature of these instruments.

Derivative Financial Instruments: The determination of the fair value of derivative financial instruments is described within “Fair Value Measurements” presented above.

Deferred Compensation Instruments: The determination of the fair value of deferred compensation instruments is described within “Fair Value Measurements” presented above.

Deposits and Securities Sold Under Agreements to Repurchase: The fair value of deposits without a stated maturity, including demand, interest-bearing demand, and savings, is considered equal to the carrying amount which is the amount payable on demand at the reporting date. The fair value of deposits and repurchase agreements with fixed maturities and rates is estimated using discounted future cash flows that apply interest rates currently being offered on instruments with similar characteristics and maturities.

FHLB and Other Indebtedness: The determination of the fair value of FHLB and other indebtedness is based on interest rates currently available to the Company for borrowings with similar characteristics and maturities. The determination of fair value for trust preferred obligations is based on credit spreads seen in the marketplace for similar issues.

Off-Balance Sheet Instruments: The value of off-balance sheet instruments, including commitments to extend credit, standby letters of credit, and financial guarantees, is considered equal to fair value. Due to the uncertainty involved in assessing the likelihood and timing of commitments being drawn upon, coupled with the lack of an established market and the wide diversity of fee structures, the Company does not believe it is meaningful to provide an estimate of fair value that differs from the given value of the commitment.

 

The following tables summarize the carrying amount and fair value of the Company’s financial instruments for the dates indicated:

 

                                         
    September 30, 2012  
    Carrying           Fair Value Measurements Using  
(Amounts in thousands)   Amount     Fair Value     Level 1     Level 2     Level 3  

Assets

                                        

Cash and cash equivalents

   $ 165,229     $ 165,229     $ 165,229     $ —       $ —    

Available-for-sale securities

     517,161       517,161       5,642       511,519       —    

Held-to-maturity securities

     816       825       —         825       —    

Loans held for sale

     4,446       4,540       —         4,540       —    

Loans held for investment less allowance

                                        

Covered under loss share agreements

     221,977       221,977       —         —         221,977  

Not covered under loss share agreements

     1,541,633       1,551,116       —         —         1,551,116  

FDIC receivable under loss share agreements

     49,477       49,477       —         —         49,477  

Accrued interest receivable

     6,038       6,038       —         6,038       —    

Derivative financial assets

     301       301       —         301       —    

Deferred compensation assets

     3,536       3,536       3,536       —         —    
           

Liabilities

                                        

Demand deposits

   $ 335,100     $ 335,100     $ —       $ 335,100     $ —    

Interest-bearing demand deposits

     360,053       360,053       —         360,053       —    

Savings deposits

     496,749       496,749       —         496,749       —    

Time deposits

     872,058       882,943       —         882,943       —    

Securities sold under agreements to repurchase

     146,904       155,062       —         155,062       —    

Accrued interest payable

     2,548       2,548       —         2,548       —    

FHLB and other indebtedness

     177,435       202,739       —         202,739       —    

Derivative financial liabilities

     2       2       —         2       —    

Deferred compensation liabilities

     3,536       3,536       3,536       —         —    

 

                 
    December 31, 2011  
    Carrying        
(Amounts in thousands)   Amount     Fair Value  

Assets

                

Cash and cash equivalents

   $ 47,294     $ 47,294  

Investment securities

     485,920       485,962  

Loans held for sale

     5,820       5,877  

Loans held for investment less allowance

     1,369,862       1,386,419  

Accrued interest receivable

     6,193       6,193  

Derivative financial assets

     135       135  

Deferred compensation assets

     3,210       3,210  
     

Liabilities

                

Demand deposits

   $ 240,268     $ 240,268  

Interest-bearing demand deposits

     275,156       275,156  

Savings deposits

     394,707       394,707  

Time deposits

     633,336       641,604  

Securities sold under agreements to repurchase

     129,208       136,359  

Accrued interest payable

     2,554       2,554  

FHLB and other indebtedness

     165,933       183,722  

Derivative financial liabilities

     6       6  

Deferred compensation liabilities

     3,210       3,210